Mortgage Fell Through on Closing Day (And Other Mishaps): 6 Things That Can Go Wrong at Closing

Getting a mortgage and buying a house involve a lot of moving parts. If one piece falls through, it can cause everything to come to a screeching halt. Closing is one of the crucial steps in the homebuying process that can make or break a real estate transaction.

Although closing issues can cause delays for buyers and sellers, knowing where the problems lie can help you effectively manage them. Understanding what can go wrong during the closing process can also help you feel prepared if things don’t work out as planned.

With all this in mind, let’s walk through some common issues that buyers and sellers may encounter when closing on a house.

Closing Problem #1: The Mortgage Falling Through on Closing Day

Taking out a mortgage is the most common way to finance a home purchase. The mortgage application process puts a borrower’s finances under the microscope, so it’s not uncommon to discover that a mortgage has fallen through even after the borrower receives an initial go-ahead from a lender.

This could happen because the buyer didn’t actually receive full mortgage approval or because their financial situation changed before closing. Let’s take a closer look at how these situations can affect whether a mortgage makes it to the finish line.

Unverified Mortgage Preapproval

Some lenders may issue a “preapproval” letter based on information that has not yet been fully verified. In some situations, this may be closer to a prequalification than a full mortgage approval.

Prequalification generally does not involve as deep a review of a borrower’s finances as mortgage approval. A buyer’s income, credit, debt, assets, employment, and other financial information may still need to be verified before the lender gives final approval.

Changes in Your Financial Situation

A buyer’s financing can also fall through if their financial situation changes after receiving initial approval. Before a lender gives final approval, they may review the buyer’s finances again.

If the buyer’s debt-to-income ratio suddenly increases, their credit score drops significantly, or their employment changes, the lender may reconsider the loan. Financing a new car, opening a new credit account, moving large amounts of money between accounts, or making a major purchase can also create problems before closing.

“Some of the biggest threats to a closing happen after the buyer thinks they’ve already been approved. Changing jobs, financing furniture, buying a car, moving money between accounts, or making a large deposit can suddenly create a problem with underwriting just days before closing. Until the keys are in your hand, the loan is still a moving target.”

The Solution

Unfortunately, there may not be much that can be done after financing falls through unless the problem can be resolved quickly. A buyer may need to make a larger down payment, provide additional documentation, or look for alternative financing.

The best solution is prevention. Buyers should consider:

• Getting mortgage approval before making an offer on a home
• Staying in regular communication with their lender
• Providing requested documents as quickly as possible
• Avoiding major financial changes before closing
• Avoiding new loans, credit cards, or major purchases

Sellers should also pay close attention to the strength of a buyer’s financing when reviewing an offer. Cash buyers may be asked to provide proof of funds showing they have enough money available to complete the transaction.

Closing Problem #2: The Home Appraisal Is Holding Up Closing

Before a buyer can purchase a home using a mortgage, the lender will usually require a home appraisal. An appraiser evaluates the property to determine its market value independently of the listing price.

A lender generally bases the amount it is willing to lend on the appraised value. If the appraisal comes in lower than the agreed purchase price, the buyer and seller may need to determine how the difference will be handled.

The Solution

If an appraisal comes in low and both parties still want to complete the transaction, several options may be available:

• The seller may lower the purchase price.
• The buyer may pay some or all of the difference in cash.
• The buyer and seller may negotiate a compromise.

In some cases, the appraisal can also be challenged. Supporting information may include comparable recent home sales or evidence that incorrect information was used when evaluating the property.

Closing Problem #3: An Unsatisfactory Home Inspection

Many buyers choose to include an inspection contingency in their purchase agreement. A home inspection can help identify potentially expensive or serious problems with the property before the transaction is completed.

No home is perfect. However, if an inspector finds something significant, the buyer and seller may need additional time to determine how the issue will be handled.

Closing delays can occur when the parties cannot agree on repairs, credits, concessions, or other remedies related to inspection findings.

The Solution

A seller who wants to move forward may agree to complete repairs before the final walkthrough or negotiate a credit or concession that allows the buyer to handle repairs after closing.

For buyers, it can be tempting to overlook significant problems when they really want the home. However, understanding the condition of the property and reaching a clear agreement before closing can help avoid disputes later.

Closing Problem #4: Title Issues

Before a real estate transaction can close, a title search is typically completed to identify liens, ownership claims, unpaid obligations tied to the property, or other issues that may affect the transfer of ownership.

Title problems can sometimes appear late in a transaction, even when a seller believes everything is already in order.

“Title problems can be some of the biggest surprises before closing. An unknown lien, an old mortgage that was paid but never properly released, or another ownership claim can surface while the title company is completing its search.”

The Solution

A transaction may not be able to proceed until title issues have been resolved and clear title can be transferred.

Before selling, homeowners should consider confirming that:

• There are no outstanding liens or debts affecting the property.
• Contractors who performed work on the property have been fully paid.
• Property taxes are current.
• Old mortgages or other debts tied to the property have been properly released.
• Any ownership questions have been addressed before closing.

Buyers may also want to discuss title insurance and the title commitment with their attorney, lender, or title professional.

Closing Problem #5: Unfulfilled Contingencies

Before closing, buyers typically conduct a final walkthrough of the property. This allows them to verify that the home is generally in the condition required by the purchase agreement and that agreed-upon work has been completed.

During the final walkthrough, buyers and their agent may want to:

• Confirm that the home is empty, reasonably clean, and free from unexpected damage.
• Check that negotiated repairs have been completed.
• Make sure items included in the sale remain in the property.
• Confirm that major home systems are functioning as expected.

If an important contractual obligation has not been satisfied, the closing could be delayed while the buyer and seller determine how to resolve it.

“Issues happen, so the question becomes whether both sides still want to make the deal happen. Many problems can be solved by extending a deadline, renegotiating an item, or simply giving the right people time to work through the issue.”

The Solution

Good communication between the buyer’s agent, seller’s agent, attorneys, lender, and other professionals involved in the transaction can help prevent small issues from turning into major closing delays.

Buyers and sellers should also stay mindful of deadlines and make sure contractual responsibilities are being completed on schedule.

Sellers should leave the home in the condition required by the agreement and make sure any items included in the transaction remain at the property.

Closing Problem #6: Cold Feet

Sometimes a real estate transaction can take an unexpected turn because one party no longer feels comfortable moving forward.

Buying or selling a home can be emotional. If a buyer or seller becomes uncertain about their decision near the end of the transaction, it can cause delays and, in some circumstances, potentially end the deal.

“Buying or selling a home can be an emotional experience. Near the finish line, it’s important to focus on the bigger picture and determine whether a concern is something that can reasonably be resolved.”

The Solution

If a buyer attempts to back out of a transaction, what happens to their earnest money deposit may depend on the terms of the purchase agreement and whether the buyer has a contractual right to terminate.

Similarly, sellers who attempt to cancel a transaction after entering into a binding agreement may face contractual or legal consequences.

Because real estate contracts and remedies vary, buyers and sellers should speak with their real estate professional and attorney before making decisions about terminating a transaction.

How Often Do Closings Fall Through?

Most real estate transactions ultimately make it to closing, although delays can happen for many reasons. Financing, inspections, appraisals, title problems, missed deadlines, and contractual disagreements are among the issues that can slow a transaction down.

Even if there are bumps along the way, many closing problems can be resolved when the buyer, seller, lender, attorneys, and real estate professionals communicate and work toward a solution.